Freddie and Fanny: When Government Gets Too Bigâ€¦

By: Guest Authors

By Chad MacINNES

Bad things happen. It screws up everything â€“ even the correct understanding of what, exactly, government is supposed to do and, more importantly, what it ought not to do. For those within the government, especially you â€œprogressiveâ€ and faux-conservative politicians out there, hereâ€™s a little clue: the government has no business messing with the economy. Our government has become so monstrous that the confused masses of America now overwhelmingly look to this Leviathan to cure all that ails our nation. Why? Because theyâ€™ve been taught to. They donâ€™t know that government has no such Constitutional authority as helping citizens and funding businesses and fixing the economy. Perhaps they (especially politicians) ought to actually read the document some time â€“ it is very enlightening indeed.

Hereâ€™s how bad it is: when most people are asked who is to blame for the economy being screwed up, they tend to answer that the government is responsible. This answer is not at all incorrect. But, hereâ€™s the problem: when asked how the woes of the economy ought to be healed, most believe that the government needs to â€œdo something about it.â€ Then they demand that Congress and the President act now! Seriously â€“ isnâ€™t the government the entity that is responsible for screwing things up in the first place? Now we are demanding that this screwed up government â€œfixâ€ things? We want to entrust an impotent and self-serving Congress with a 9% approval rating and an Administration with little understanding of Constitutional restraint to â€œfixâ€ things? The government has no business messing with the economy in the first place because in doing so it just messes things up even more and ends up costing the taxpayers (donâ€™t even get me started on that).

On Sunday Treasury Secretary Henry Paulson announced that Freddie Mac and Fannie Mae were being placed in a â€œgovernment conservatorship.â€ The plan to take control over the companies was approved by Fed Chairman Ben Bernanke. Paulson also affirmed that the Treasury would do â€œwhatever it takesâ€ to keep these two bastions of government excess from failing. Initially the Treasury would receive $1 billion in preferred shares, and then is initially prepared to provide up to $200 billion to help the companies heal from their financial hemorrhaging over excessive risky home loans. Remember that word: initiallyâ€¦ youâ€™ll see why in a minute.

The CEOs of both companies were fired â€“ sort of. Freddie Macâ€™s Richard Syron and Fannie Mae’s, Daniel Mudd, were respectively replaced by David Moffett, a former top official at US Bancorp and Herb Allison, formerly with Merrill Lynch. But, Syron and Mudd wonâ€™t be leaving immediately â€“ theyâ€™ll be sticking around for the transition. If that werenâ€™t enough, The Treasury’s plan puts the two companies under a conservatorship, giving management control to their regulator, the Federal Housing Finance Agency. FHFA was created recently by Congress specifically to oversee Freddie and Fannie. Are you beginning to see the pattern here? Try Googling FHFA.gov to find its website and youâ€™ll see that there is none. Either the agency is too new, or the government has become so big thereâ€™s no more room left in cyberspace for any more.gov websites. I am inclined to believe the latter.

According to the Wall Street Journal, with the government seizure of Freddie and Fanny, â€œthe U.S. mortgage crisis entered a new and uncharted phase, potentially saddling American taxpayers with billions of dollars in losses from home loans made by the private sector. Bush administration officials argued that the cost of doing nothing would be far greater because of the toll on the economy of falling home prices and defaults in the $11 trillion U.S. mortgage market.â€ Potentially? Are they kidding? The bill is already in the mail.

But, the best is yet to come. Secretary Paulson noted that more than $5 trillion of debt and mortgage-backed securities issued by Fannie and Freddie is owned by central banks and other investors world-wide.
Do you know what that means? Think back to where the Treasury pledged to initially provide up to $200 billion and how Secretary Paulson stressed that the Treasury will do â€œwhatever it takesâ€ to save Freddie and Fanny. Factor that in with the $5 trillion of debt that is owned by foreign central banks and investors and then put Congress into the mix, and guess what you have? A Congressional authorization for our comrades at the Federal Reserve to do â€œwhatever it takesâ€ even to the tune of, oh, say, $5 trillion. After all, it wonâ€™t really be â€œdebt,â€ because said â€œdebtâ€ will just go back to the Treasury to be auctioned off to more foreign central banks and investors. And eventually, our taxes will go up and weâ€™ll pay for foreign bankers to get filthy rich.

Keep in mind that the whole reason Freddie and Fanny were created by Congress is summed up in the following signature mission statement: â€œFreddie Mac is a stockholder-owned corporation established by Congress in 1970 to provide liquidity, stability and affordability to the nation’s residential mortgage markets. Freddie Mac raises capital on Wall Street and throughout the world’s capital markets to finance mortgages for families across America.â€ Translated from Congress-speak this means: all investments through Freddie and Fanny are safe because Uncle Sam guarantees them.

There is no risk at all to the investor. And that is exactly the problem. That is exactly why government should never, ever be involved in messing around with the economy.

From the Wall Street Journal: â€œThe intervention also marks the failure of the public-private experiment that was created to boost home ownership among Americans. Fannie and Freddie were created by Congress to help prop up the housing market, and investors have long believed the government would bail the companies out in a crisis. But the companies have long been owned by private shareholders seeking to maximize profits.â€ And they will. And the people will be angry, but Congress wonâ€™t care. You can bet on a new-and-improved â€œpublic-private scam that will certainly fleece the taxpayers of even more money.

One economist from the University of Pennsylvania’s Wharton School said, â€œWithout government support for the mortgage market, home prices would fall much further, exposing the country as a whole to greater economic strain.â€ Any reasonable person who has ever read the Constitution with even a modicum of understanding and who gets the basic principles of supply and demand as the basis of a free market capitalist system of economics would argue the exact opposite. Why? Because of the difference between a supply system vis-Ã -vis a command system: once the government enters into the business of supporting various sectors of the economy the entire economy becomes de facto an artificial bubble, ever more removed from the reality of the market and prompting more and more government intervention until the government has to take control of or nationalize most of the economy in order to regulate prosperity and production and keep the whole thing from imploding. The problem here is obvious: Freddie and Fanny are the most startling examples of who our Founding Fathers never intended the government to be involved in such things.

Today President Bush had this to say: â€œPutting these companies on sound financial footing, and reforming their business practices, is critical to the health of our financial system and to making further progress with the housing correction that today is weighing heavily on our economy. Allowing the companies to fail or further deteriorate would damage our home mortgage market, and could weaken other credit markets that are unrelated directly to housing.” He went on to stress that this is not a government bailout.

Well, if a pledge of $200 billion for starters with a real possibility of running into the trillions is not a government bailout, I donâ€™t know what it is. Wait a minute – maybe I do. Itâ€™s called nationalization. Itâ€™s called command economics. It is a deadly endeavor for a free republic. It is the inevitable result in a series of mortal errors that began with the creation of a central bank, the Federal Reserve System, by the Federal Reserve Act enacted December 23, 1913. That Act alone was a treasonous violation of the Constitution that has effectively sealed the ultimate fate of this republic â€“ unless it can someday be repealed. It was shortly followed by another treasonous abomination, the 16th Amendment ratified 03 February 1913 resulting in the Federal Income Tax Act of 03 October 1913. All must be repealed because all are deadly to a free republic because they by their nature usurp Liberty and encroach upon the rights of the individual. Not surprisingly a progressive income tax and a strong central bank are number 2 and 5, respectively, of Karl Marxâ€™s list of 10 essential measures that must be enacted in order â€œto centralize all instruments of production in the hands of the State, i.e., of the proletariat organized as the ruling class; and to increase the total productive forces as rapidly as possible.â€ For those who are interested, this list is located toward the end of Chapter II of the Communist Manifesto.

Every American should read the Communist Manifesto. They should read it so that they all understand what happens when government gets too big. They should read it all be frightened and angered. They should read it so that they can better understand why our Founding Fathers gave us the Constitution of the United States of America, and why that document was crafted so as to never to be tampered with or reinterpreted, lest we lose our Liberty to government hegemony, for such hegemony against individual Liberty is the only possible result when government grows too big to be stopped. It feeds on Liberty and snuffs out freedom. And this is only the beginning â€“ unless it can be stopped.